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THE  FINANCIAL  INDEPENDENCE  SERIES 
By  Henry  Colman  Cutting 

Volume  I 


Financial  Independence 


AND  HOW  TO  ATTAIN  IT 


BY 


HENRY  COLMAN  CUTTING 


/>  I    ^  •*/.•'*.  s*  •*»  i  I  A 


THE  FINANCIAL  LIBERTY  LEAGUE 

PUBLISHERS 
NEW  YORK  SAN  FRANCISCO 

CHARLES  L.   YOUNG,  Distributor 

6    WALL    STREET 
NEW    YORK    CITY 


^' 


COPYRIGHT,    1916,    BY 
HENRY    COLMAN    CUTTING 


All  rights  reserved 


Preface 

The  author,  realizing  that  for  this  work 
to  accomphsh  the  object  in  view,  that  of 
giving  to  our  country  a  financial  system  in 
keeping  with  our  American  ideals,  the  logic 
of  the  situation,  and  the  desire  for  a  change 
must  reach  the  masses  of  the  people,  who 
now  look  upon  finance  and  financial  insti- 
tutions as  something  beyond  their  under- 
standing and  above  their  control;  so  that, 
in  presenting  this  brief  work,  the  avoidance 
of  technicahties  and  intricacies  has  been 
ever  uppermost  in  mind.  The  idea  pre- 
sented here  is  new  and  very  contrary  to 
the  universally  accepted  theory.  So  the 
author  has  endeavored  to  make  it  clear  to 
all,  preferring  to  risk  tiresome  simphcity 
and  repetition  rather  than  lack  of  under- 
standing. 


340573 


vi  PREFACE 

Money  or  finance  is  the  foundation  of 
civilization.  Every  civilized  human  is 
more  intimately  concerned  in  a  proper 
financial  system  justly  administered  than 
in  any  other  human  institution.  As  the 
happiness  and  well-being  of  all  are  vitally 
affected,  and  as  we  are  all  interdependent 
each  upon  the  other,  it  is  the  clear  duty 
of  every  citizen  to  understand,  and  to  see 
that  his  neighbor  understands;  so  that 
the  existing  evils  may  be  corrected  for  the 
benefit  of  all. 

The  reader  should  realize  that  the  matter 
in  hand  is  too  important  to  all  of  us  to  be 
lightly  dismissed,  even  should  he  not  agree 
with  the  author  on  either  the  cause,  the 
remedy,  or  the  result.  There  must  be 
something  radically  wrong;  otherwise  we 
would  not  have  had  Pujo  Committee  in- 
vestigations, the  Anti-Trust  Laws,  the  Laws 
Prohibiting  Interlocking  Directors,  the  Fed- 
eral Reserve  Act,  and  lastly,  the  Act 
Providing  for   Rural   Credit   Institutions, 


PREFACE  vii 

as  a  few  of  the  remedies  which  have  been 
administered,  all  looking  to  the  curing  of 
acknowledged  defects  in  our  financial  sys- 
tem. Should  the  diagnosis  here  offered  be 
admittedly  correct,  and  the  remedy  sug- 
gested be  logically  proven  a  specific,  we 
should  not  hesitate  to  administer  it  because 
the  treatment  seems  heroic  and  the  result 
Utopian. 

This  Uttle  work  is  not  the  result  of  theo- 
retical learning  and  of  academic  study, 
but  of  a  varied  business  experience  gathered 
in  many  fields  of  endeavor,  and  is  not  the 
plaint  of  one  who  has  lost  in  the  fight,  but 
is  the  clarion  call  to  those  who  love  fair 
play  and  are  neither  too  weak  nor  too  indo- 
lent to  demand  justice. 

H.  C.  CUTTING 


CONTENTS 

PAGE 

I.  The  Trouble 1 

Money  and  Exchange 1 

Who  Mints  our  Money? 2 

Definition  of  Money 3 

Reason  for  Money 4 

Barter 5 

Commodity  Money 5 

Fiduciary  Money 6 

Bank  Credit 6 

Money  the  Barometer  of  Civihzation  .    .  7 

What  History  Teaches 8 

Confidence  not  necessary  in  the  past     .    .  9 

100  %  Confidence  Required  Now    ....  10 

Necessary  Element  Lacking 11 

How  a  Private  Mint  Operates 12 

Bank  Coinage 13 

Currency  Control  by  Congress  a  Myth    .  14 

Why  Confidence  is  Lacking 16 

Bank  CHque 16 

What  Makes  Banking  Profitable?  ....  18 

Elements  of  Credit 19 

Liquid  Assets 19 

The  Farmer  and  the  Bank 20 


X  CONTENTS 

Rural  Credits 21 

Bank  Credit  and  Our  Rulers 21 

Why  Pad  the  Yoke? 22 

A  Monetary  Despotism 23 

Obvious  Defects  of  our  Present  System  .  23 

What  Property  shall  enjoy  Coinage? ...  24 

Aristocrats  and  Courtiers 25 

The  Trusts  a  Symptom,  not  the  Cause .    .  25 

II.  The  Remedy 27 

Neither  Revolutionary  nor  SociaUstic    .    .  27 

Confirmatory  Opinions 28 

The  New  System 29 

Security  Commission  Personnel  .....  30 
Honesty  in  Business  Compulsory  ....  34 
Operation  of  the  Security  Commission  .    .  35 
No  Chance  for  GtbII  nor  Personal  In- 
terest     36 

Loan  Commission  Personal 38 

Duties  of  the  Loan  Commission 39 

Operation  of  the  Loan  Commission    ...  40 

Appeals 41 

Laws  to  Govern  Banks 42 

Runs  on  Banks  Prevented 43 

Bank  Failure  Impossible 44 

III.  The  Result 46 

The  Two  Systems  Compared 47 

No  Real  Experts  Now 47 

The  Bank's  Loan  Committee 48 

Conflict  of  Interests 49 

Operation  of  New  System 50 


CONTENTS  xi 

Security  Certificate 50 

Accuracy  !;5.  Guess  Work 51 

How  a  Loan  is  Made 52 

Better  for  Banker  and  Borrower    ....  54 
Borrowing  Money  a  Bight  Not  a  Privi- 
lege    55 

Crooks  and  Grafters  out  of  Business ...  56 

Standardization  of  Values 57 

Establishment  of  Values  Automatic  ...  58 

Begulates  Tax  Values 59 

Neither  Political  nor  Private  Graft    ...  61 

Safety,  Honesty,  Prosperity  and  Power    .  62 

The  Money  Power 63 

The  Money  Trust 64 

The   People   should   Control  the  Money 

Power 64 

Our  Laws  Forge  Our  Fetters 65 

Usurpation  of  Governmental  Function     .  66 

Change  the  Bules  of  the  Game 67 

A  New  Declaration  of  Independence ...  68 

Heroes,  Martyrs  and  Slaves 69 

Financial  Independence 70 


Financial  Independence 

• 

Chapter  I 
THE  TROUBLE 

Money  and  Exchange.  —  The  average 
reader  erroneously  considers  the  subject  of 
money  and  exchange  as  made  up  of  prob- 
lems too  complicated  and  difficult  for  the 
layman  to  understand,  and  because  of  this 
impression  does  not  give  to  it  the  attention 
which  his  welfare  and  that  of  the  com- 
munity demands.  The  complications  and 
the  difficulties  come  only  from  the  involved 
application  of  simple  principles  by  those 
who  realize,  with  Emerson,  that  "a  man's 
greatest  asset  is  the  imbecility  of  those 
about  him."  The  writer  believes  that  the 
people  can  be  made  to  see  how  completely 
this  human  attribute  is  being  taken  advan- 
tage of,  legally  but  still  unfortunately;  and 


;^/>  .  :    FimNCIAL  INDEPENDENCE 

that  when  they  do  see  it,  they  will  desire 
to  remedy  the  condition.  This  desire  is  all 
that  is  required  —  they  possess  the  power. 

Who  Mints  our  Money?  —  The  common 
impression  that  the  money  of  the  country  is 
minted  by  the  Government  is  true  only  to  a 
limited  extent,  for  while  the  Government 
does  "mint" — that  is,  place  its  stamp  upon 
the  metal  or  specie  and  the  paper  commonly 
called  currency,  that  is  a  very  small  portion 
of  our  present-day  circulating  medium. 
The  real  vehicle  of  exchange  by  means  of 
which  om*  business  is  transacted,  our  indi- 
vidual success  is  measured,  and  our  comfort 
and  independence  are  secured,  is  "minted" 
by  banks;  in  other  words,  our  present-day 
money  is  issued  and  controlled  by  private 
institutions  operated  for  private  gain. 

Exchange  as  used  here  means  trade,  — 
buying,  selling,  or  barter.  The  boy  at 
school  who  trades  a  top  for  a  jack-knife, 
and  gives  marbles  or  pins  to  boot,  knows 
all  about  it.     In  this  big  world  of  ours, 


THE  TROUBLE  3 

when  we  grow  up,  one  man  makes  hats 
and  another  makes  bread.  This  diversity 
of  employment  is  what  we  call  division  of 
labor.  Then  the  two  men  trade  products 
with  each  other,  so  that  the  baker  has  a 
hat,  and  the  hatter  has  bread.  As  one 
hat  is  worth  more  bread  than  the  hatter 
could  eat  before  it  became  stale  and  worth- 
less, the  baker  gives  the  hatter  bread  tick- 
ets, which  he  agrees  to  accept  for  bread 
whenever  and  by  whomever  presented,  or 
he  gives  him  credit  for  a  certain  number  of 
loaves  upon  his  books. 

Definition  of  Money.  —  In  that  imme- 
diate community,  where  the  people  know 
the  baker,  and  have  confidence  that  he  will 
furnish  such  a  loaf  of  bread  as  the  ticket 
calls  for  at  any  time  a  ticket  is  presented, 
or  that  he  will  deliver  bread  upon  an  order 
from  the  hatter,  that  bread  ticket,  or  the 
order  from  the  hatter,  becomes  money,  or 
the  medium  of  exchange.  Money  is  any- 
thing the  people  of  the  community  will  ac- 


4  FINANCIAL  INDEPENDENCE 

cept  in  exchange  for  their  property  and 
services.  The  hatter  can  take  his  surplus 
tickets  to  the  butcher  and  buy  meat,  or 
the  shoemaker  will  repair  his  shoes  in 
exchange  for  an  order  for  bread. 

The  bread  itself,  if  used  as  a  medium  of 
exchange,  is  intrinsically  valuable  money, 
like  gold;  the  use  of  it  is  barter. 

The  bread  ticket  is  representative  or 
fiduciary  money,  like  our  gold  and  silver 
certificates,  greenbacks,  and  bank  notes. 

The  order  for  bread  given  by  the  hatter 
on  the  baker  is  the  same  as  a  bank  check. 
It  transfers  credit. 

The  value  of  the  last  two  depends  upon 
the  confidence  of  the  community  in  the 
baker  and  hatter. 

There  is  nothing  more  complicated  nor 
diflicult  to  understand  in  the  whole  world 
of  finance  than  in  the  foregoing  simple 
illustration. 

Reason  for  Money.  —  When  men  first 
reached  a  point  of  development  which  en- 


THE  TROUBLE  5 

abled  them  to  have  sufficient  confidence, 
each  in  the  other,  so  they  could  gather 
together  in  small  conamunities  better  to 
protect  themselves  and  to  supply  each 
other's  wants,  then  division  of  labor  be- 
came possible.  This  division  of  labor, 
when  the  conamunity  became  larger  than 
one  family,  gave  rise  to  the  necessity  for 
the  exchange  of  goods  and  services. 

Baxter.  —  In  the  dawn  of  civilization, 
this  exchange  was  carried  on  by  barter,  or 
the  trading  of  one  commodity  or  service 
for  another.  As  the  community  enlarged 
still  further,  barter  became  inconvenient, 
and  some  article  easily  portable,  durable, 
and  commonly  acceptable,  began  to  be 
used  as  money,  or  as  a  medium  of  exchange. 
At  one  time  or  another  almost  every  kind 
of  merchandise  answering  the  above  de- 
scription has  served  the  purpose. 

Commodity  Money.  —  This  primitive 
money  had  an  intrinsic  value,  and  the  use 
of  it  was  only  barter  after  all,  but  barter 


6  FINANCIAL  INDEPENDENCE 

proved  inconvenient,  restricted  exchange, 
and  so  hindered  development.  The  use  of 
money  overcame  this  to  a  degree,  but  even 
the  use  of  money  was  a  hindrance  to  an 
expanding  trade. 

Throughout  the  commercially  civilized 
world  today  this  form  of  conducting  ex- 
change has  practically  disappeared,  gold 
being  the  last  form  of  conunodity-money 
to  be  used. 

Fiduciary  Money.  —  As  the  community 
continued  to  grow,  and  commercial  activity 
to  increase,  even  gold  and  silver  became 
inconvenient  and  incapable  of  performing 
the  functions  of  exchange,  so  representa- 
tive or  fiduciary  money  came  into  use. 
This  consisted  of  Government-issued  cur- 
rency, bank  notes,  etc. 

Bank  Credit.  —  With  steam  overcoming 
distance,  and  with  electricity  annihilating 
time,  the  business  community  became  so 
enlarged  that  the  fiduciary  money,  brought 
into  existence  by  the  demand  for  a  more 


THE  TROUBLE  7 

elastic  and  more  easily  handled  medium  of 
exchange,  finally  developed  into  bank  credit. 
This  last  expedient  seeming  to  satisfy  all 
demands,  is  now  so  universally  accepted 
that  it  has  practically  displaced  the  use  of 
all  other  vehicles  of  exchange. 

Money  the  Barometer  of  Civilization. — So 
we  see  that  from  a  state  of  existence  where 
each  human  being  provided  for  all  of  his 
own  wants  and  for  the  wants  of  his  im- 
mediate family,  we  have  developed  first 
through  exchange  by  barter,  then  through 
exchange  by  commodity-money,  to  a  state 
where  we  used  fiduciary  or  representative 
money,  and  finally  we  have  progressed  to 
a  state  of  commercial  development  where 
we  use  but  a  very  small  amount  of  even 
fiduciary  money.  So  that  today  the  use 
of  money,  as  that  term  is  commonly  un- 
derstood, has  almost  ceased.  We  have 
advanced  to  a  more  convenient  form  of 
exchange,  —  that  is,  to  the  use  of  bank 
credit,  or,  one  might  say,  to  a  system  of 


8  FINANCIAL  INDEPENDENCE 

bookkeeping,  by  which  the  exchange  of 
goods  and  services  is  conducted.  Each 
improvement  in  the  means  or  method  of 
conducting  exchange  has  in  turn  produced 
a  higher  level  of  civilization,  a  larger 
material  development,  and  a  wider  field  of 
action;  as  well  as  a  greater  interdepen- 
dence each  on  the  other  by  allowing  a 
constant  increase  in  the  division  of  labor. 
In  proportion  to  these  advancements  the 
medium  of  exchange  and  its  issuance  and 
control  have  become  of  increasing  im- 
portance to  each  individual  and  to  the 
community. 

What  History  Teaches.  —  During  this 
development,  which  has  covered  many 
hundreds  of  years  and  has  been  fraught 
with  many  painful  experiences,  no  fact 
has  been  more  emphatically  brought  out 
than  that  money,  or  the  medium  of  eX' 
change,  must  have  the  confidence  of  all 
the  people,  and  be  acceptable  to  all,  or 
disaster  results. 


THE  TROUBLE  9 

Confidence  not  Necessary  in  the  Past,  — 
When  commodity-money  was  used,  the 
only  question  presented  to  the  trader  was 
whether  the  article  or  articles  offered  in 
exchange,  or  as  money,  were  of  the  weight 
and  grade  demanded  by  common  use. 
This  in  many  cases  was  regulated  by  law, 
and  in  the  case  of  metal  money  a  Govern- 
ment stamp  was  put  on  the  metal  for  no 
other  purpose  than  to  guarantee  its  weight 
and  fineness.  The  trader  could  examine 
the  article  he  was  receiving,  and  decide  for 
himself  whether  it  was  sound  money  as 
represented.  No  confidence  was  necessary. 
Each  trader  relied  on  his  own  knowledge 
and  judgment. 

When  fiduciary  or  representative  money 
came  into  use,  a  question  was  always  pre- 
sented as  to  its  genuineness,  and  as  to  the 
ability  of  the  issuing  source  to  redeem  its 
pledge  in  intrinsically  valuable  or  commod- 
ity-money. As  long  as  all  members  of  the 
community  had  confidence  and   accepted 


10  FINANCIAL  INDEPENDENCE 

this  money  at  par,  it  served  its  purpose, 
but  it  lost  its  value  just  in  proportion  as 
the  issuing  source  lost  the  confidence  of 
the  people. 

100%  Confidence  Required  Now.  —  In- 
asmuch as  confidence  is  a  necessary  ele- 
ment for  this  fiduciary  money,  it  has  been 
found,  after  a  bitter  experience,  that  the 
Government  must  issue  it  or  stand  back  of 
it,  because  no  private  institution  can  gain 
and  hold  100%  confidence  of  the  people, 
and  unless  money  has  100%  confidence  it  is 
subject  to  discount,  and  that  means  com- 
mercial disaster. 

In  all  this  there  is  nothing  new,  being 
merely  a  statement  of  fact  and  history.  As 
recorded  above,  the  use  of  money  in  pres- 
ent-day business,  except  for  small  transac- 
tions, has  been  discontinued.  A  man  who 
made  a  payment  of  any  consequence  to- 
day in  currency  would  be  considered  an 
old  fogy;  if  he  used  gold,  he  would  be 
looked    upon   as   a   curiosity;    and   if  he 


THE  TROUBLE  11 

paid  in  silver,  he  would  be  regarded  as  a 
nuisance! 

Necessary  Element  Lacking.  —  The  bank 
check  has  displaced  money  as  the  medium  of 
exchange,  and  while  this  is  a  step  in  ad- 
vance, and  while  bank  credit,  which  the 
check  represents,  is  the  most  modern  and 
best  medium  of  exchange  yet  devised,  it 
is  the  real  cause  of  our  trouble,  for  as 
at  present  issued  or  minted  it  lacks  the 
one  element  necessary  for  sound  and  safe 
money.  That  lack  is  universal  confi- 
dence. 

The  reason  is  apparent.  It  is  issued  and 
controlled  by  banks,  which  are  private  in- 
stitutions. As  pointed  out,  all  history  has 
taught  us  that  the  medium  of  exchange,  to 
have  and  to  retain  100%  confidence  of  the 
people,  must  be  issued  and  controlled  by 
the  Government,  and  anything  less  than 
100%  confidence  brings  disaster.  The 
panics  which  have  occurred  once  every 
decade    for    the    last    eighty    years    bear 


12  FINANCIAL  INDEPENDENCE 

witness  to  this,  and  even  these  are  by 
no  means  the  worst  results  of  our  present 
system. 

How  a  Private  Mint  Operates.  —  Before 
discussing  the  bad  effects,  it  is  well  to  see 
just  how  this  private  mint  is  operated.  A 
bank  is  incorporated  for  say  $10,000  of 
stock,  all  paid  up,  and  it  opens  for  business. 
The  people  of  the  community  deposit 
$50,000  in  cash.  At  this  stage  the  balance 
sheet  reads  as  follows: 

Resources  Liabilities 

Cash $60,000.00         Capital $10,000.00 

Deposits 50,000.00 

Total $60,000.00        Total $60,000.00 

The  banker  knows  by  experience  that 
these  deposits  will  be  a  constant  or  increas- 
ing amount,  for  as  withdrawals  are  made 
new  money  is  deposited,  so  he  can  depend 
upon  having  $60,000  or  more  cash  always 
on  hand.  This,  however,  shows  no  profit 
to  the  banker,  but  the  private  mint  now 
begins  operations: 


THE  TROUBLE  13 

Bank  Coinage.  —  A  customer  applies  for 
a  loan  of  say  $1000  for  ninety  days,  or, 
to  put  it  in  bank  parlance,  the  banker 
buys  commercial  paper.  He  takes  the 
customer's  note,  payable  in  ninety  days, 
at  6%  interest.  The  banker  may  take  the 
note  and  credit  the  customer  with  $1000, 
and  wait  until  the  note  is  due  to  collect 
the  interest,  or  he  may  discount  the  note, 
—  that  is,  take  the  interest  in  advance,  — 
and  in  that  case  the  customer  is  credited 
with  $985  in  exchange  for  his  $1000  note, 
due  in  ninety  days.  Whichever  way  it  is 
done,  the  point  is  this:  the  customer  is 
given  a  credit  in  his  bankbook  for  the 
amount  of  the  note  he  gives.  If  the  cus- 
tomer deposited  money,  the  entry  would 
appear  the  same  both  on  the  customer's 
bankbook  and  on  the  banker's  books. 
It  is  a  deposit,  for  in  theory  the  banker 
has  handed  the  customer  the  cash  for  his 
note,  and  the  customer  has  deposited  that 
cash  in  the  bank,  but  in  reality  not  a  cent 


14  FINANCIAL  INDEPENDENCE 

of  money  is  used.  The  banker  has  simply 
coined  or  minted  $1000. 

The  customer  returns  to  his  office,  draws 
his  checks  in  payment  for  goods  or  ser- 
vices, and  the  net  result  is  that  $1000  has 
been  added  to  the  circulating  medium. 

The  banker  continues  to  make  loans  or 
to  discount  paper  as  above  until,  we  wiU 
say,  he  has  loaned  $360,000,  or  has  bought 
$360,000  of  commercial  paper,  on  which 
he  has  made  $10,000  in  discount  or  inter- 
est. The  cash  deposits  and  withdrawals 
balancing  at  $50,000  the  balance  sheet 
shows  as  follows: 

Resources  Liabilities 
Cash: 

(Capital  $10,000  Deposits $400,000.00 

Cash  deposited  ($50,000  Cash; 

$50,000) $  60,000.00  $350,000  Bank 

Loans  and  Credit) 

Discounts 360,000.00     Capital 10,000.00 

Profit ■  ■  10,000.00 

Total $420,000.00    Total $420,000.00 

Currency  Control  by  Congress  a  Myth. — 
The   bank,  on   $10,000    of  its   own   cash 


THE  TROUBLE  15 

and  $50,000  cash  deposited  by  the  people, 
which  is  Government-issued  money,  has 
minted  and  added  to  the  circulating  me- 
dium $350,000,  or  about  six  dollars  in  bank 
credit  has  been  minted  by  the  bank  for 
every  dollar  of  cash  minted  by  the  Gov- 
ernment, and  deposited  or  put  in  as  capi- 
tal. If  this  bank  is  in  a  State  which  requires 
a  15%  legal  reserve,  it  has  about  reached  its 
limit  until  more  cash  is  deposited,  but  for 
every  dollar  of  Government-minted  money 
deposited  by  the  people  the  bank  can  mint 
about  six  dollars  of  bank  credit,  which 
performs  the  same  service  and  is  really  our 
present-day  money.  In  a  State  where  no 
legal  reserve  is  required,  the  only  limit  is 
the  banker's  judgment  or  nerve. 

As  long  as  the  banks  enjoy  the  privilege 
of  issuing  from  six  to  ten  dollars  on  each 
dollar  issued  by  the  Government,  and  the 
question  of  how  much  and  to  whom  it  will 
be  issued  is  wholly  within  the  discretion  of 
those  who  control  them,  not  only  is  the 


16         FINANCIAL  INDEPENDENCE 

inflation  or  the  contraction  of  our  real 
currency  at  their  mercy,  but  they  are 
the  arbiters  of  every  man's  destiny,  and  the 
rulers  of  this  Nation.  Let  us  grant,  for 
the  sake  of  argument,  that  our  bankers 
are  the  most  worthy  and  the  most  intelli- 
gent men  among  us:  yet  the  people  cannot 
have  100%  confidence  in  money  turned 
out  by  a  private  institution,  which  is  op- 
erated for  private  gain.  The  burned  child 
is  afraid  of  the  fire. 

Why  Confidence  is  Lacking.  —  In  a  com- 
mercial bank,  all  the  deposits  of  $400,000, 
shown  in  the  last  balance  sheet,  are  pay- 
able on  demand.  If  a  rumor  spreads 
through  the  community  that  the  bank  is 
unsafe,  and  the  depositors  start  to  draw 
out  their  deposits  (which  is  called  a  run  on 
the  bank),  it  is  evident  that  when  the 
$60,000  cash  shown  on  the  statement  is 
gone  the  bank  must  close  its  doors. 

The  Bank  Clique.  —  This  does  not  nec- 
essarily mean  that  the  owners  of  the  rest 


THE  TROUBLE  17 

of  the  deposits  of  $340,000  will  lose  all  or 
any  part  of  their  money,  for  if  the  rest  of 
the  assets  of  the  bank  shown  as  loans  and 
discounts  under  the  head  of  Resources  are 
good,  the  depositors  and  even  the  stock- 
holders may  come  out  all  right;  but  this  is 
rare.  More  frequently  it  appears  that  the 
directors  have  loaned  the  credit  of  the 
bank  to  insiders,  or  to  the  bank  clique, 
on  inadequate  security  or  even  on  no 
security,  so  that  the  notes  or  commercial 
paper  are  uncollectible,  and  the  depositors 
lose  all  or  the  major  part  of  their  deposits. 
This  has  occurred  so  many  times  that  the 
people  never  can  have  100%  confidence 
in  the  banks  as  at  present  operated, 
and  a  medium  of  exchange  minted  by 
them  and  depending  upon  them  for 
security  will  never  be  safe.  The  foregoing 
applies  in  principle  to  every  bank,  large 
or  small. 

Our  theory  of  government  is  that  the 
Government  is  of  the  people,  by  the  people, 


18  FINANCIAL  INDEPENDENCE 

and  for  the  people.  So  personal  interest  is 
eliminated  from  Government-issued  money, 
and  we  have  confidence  in  it,  and  will 
accept  it  at  100%  just  so  long  as  we  have 
full  confidence  in  our  Government. 

The  bank  is  not  of  the  people,  it  is  not 
operated  and  controlled  by  the  people,  and 
certainly  no  one  is  simple  enough  to  think 
that  it  is  operated  for  the  benefit  of  the 
people.  It  is  owned,  controlled,  and  oper- 
ated for  the  benefit  of  the  bank,  which 
means  the  stockholders  generally,  and  the 
bank  clique  particularly.  Those  stock- 
holders who  control  the  bank,  and  their 
business  associates,  make  up  the  bank 
clique,  or  insiders.  One  may  be  a  stock- 
holder and  still  be  an  outsider. 

What  makes  Banking  Profitable.  —  It  is 
this  privilege  of  accepting  deposits  and 
issuing  bank  credit  which  makes  the  bank- 
ing business  profitable.  The  bank  capital 
is  solely  for  the  purpose  of  attract- 
ing deposits.    When    the    deposits   come, 


THE  TROUBLE  19 

the  mint  begins  operations,  and  therein 
hes  the  profits.  It  should  be  clearly  ap- 
parent that  all  of  the  apparatus  the  banker 
uses  to  make  a  profit  belongs  to  the  general 
public. 

Elements  of  Credit.  —  Credit  is  made  up 
of  two  elements,  confidence  and  time.  If 
your  credit  is  good  at  the  corner  grocery, 
it  is  because  the  grocer  believes  that  you 
will  pay  at  some  time  in  the  future.  The 
time  he  is  willing  to  allow  you  for  payment 
depends  directly  upon  the  amount  of  con- 
fidence he  has  in  your  ability  and  willing- 
ness to  pay.  No  confidence,  no  time;  more 
confidence,  more  time. 

Liquid  Assets.  —  The  same  rule  applies 
to  bank  credit  in  this  way:  the  banker  is 
lending  money  that  belongs  to  the  deposi- 
tors, and  which  is  payable  on  demand. 
While  the  banker  may  have  abundance  of 
confidence  in  the  borrower,  the  people  may 
not  have  equal  confidence  in  the  banker, 
because  they  do  not  know  what  security 


20         FINANCIAL  INDEPENDENCE 

he  has  received  for  the  money  he  has  loaned 
or,  indeed,  whether  he  has  any;  and  because 
the  insiders  or  bank  chque  have  wrecked  so 
many  banks.  At  the  least  hint  of  weak- 
ness, the  depositors  will  withdraw  their 
deposits;  so  the  bank  enjoying  but  little 
confidence  of  the  people  is  compelled  to 
make  short-time  loans.  As  expressed  by 
the  commercial  banker,  his  assets  must  be 
kept  liquid,  (That  is,  quickly  convertible 
into  cash.) 

The  Farmer  and  the  Bank.  —  So  it  is 
seen  that  the  people's  lack  of  confidence 
in  the  banks  compels  them  to  mint  a  very 
unstable  and  transient  variety  of  money. 
This  shortness  of  time  in  our  present-day 
money  works  to  the  great  disadvantage  of 
the  farmer,  and  to  the  men  who  are  devel- 
oping the  country,  but  by  the  same  token 
to  the  advantage  of  the  speculator. 

Because  of  the  fact  that  the  farmer  can- 
not use  thirty,  sixty,  and  ninety-day  money, 
and  because  the  farmer  is  still  quite  a  factor 


THE  TROUBLE  21 

in  our  national  and  political  life,  Congress 
has  found  it  necessary  to  pass  a  bill  for  the 
creation  of  rural  credits.  Creating  a  finan- 
cial institution  for  each  kind  of  business 
may  cover  up  the  defects  of  our  present 
system,  but  it  cannot  cure  them. 

Rural  Credits.  —  As  stated  above,  time 
is  in  direct  proportion  to  confidence.  If 
the  people  knew  positively  that  no  bank 
could  fail,  that  every  dollar  of  its  loans 
were  on  good  security,  if  the  people  had 
100%  confidence  in  the  banks,  there  would 
be  no  reason  for  limiting  their  loans  to 
thirty,  sixty,  and  ninety  days.  Liquid 
assets  would  not  be  necessary,  and  rural 
credit  institutions  would  not  have  to  be 
held  out  to  the  farmer  as  a  panacea  for  his 
ills.  He  could  borrow  money  from  the 
same  bank  which  loans  to  the  merchant 
and  to  the  speculator,  and  on  equally  good 
terms. 

Bank  Credit  and  Our  Rulers.  —  It  is  safe 
to  say  that  nine-tenths  of  the  medium  of 


22  FINANCIAL  INDEPENDENCE 

exchange  used  today  is  bank  credit.  The 
fact  that  nine  out  of  every  ten  dollars  of 
the  circulating  medium  is  issued  and  con- 
trolled by  private  institutions  may  not  be 
particularly  startUng  nor  abhorrent,  but  an 
analysis  of  the  results  of  turning  our  coin- 
age over  to  private  parties  for  private  gain 
is,  as  we  shall  see,  at  the  expense  of  our 
hberty,  our  safety,  and  our  efficiency,  and 
is  the  cause  of  distress  and  disaster. 

Why  Pad  the  Yoke?  —  In  time  we  could 
perhaps  put  enough  patches  on  the  present 
system  in  the  shape  of  Federal  Reserve 
Banks  to  bolster  up  the  confidence  of  the 
people,  and  add  a  little  to  the  Uquidity  of 
the  bank's  assets.  Rural  Credit  institutions 
to  take  care  of  the  farmers.  Poor  Men's 
banks  to  take  care  of  those  who  are  be- 
neath the  notice  of  the  Rich  Man's  bank, 
so  that  panics  would  come  only  every 
fifteen  or  twenty  years  instead  of  every 
ten  as  now,  and  we  could  hobble  along, 
but  why   pad  the  yoke  to  keep  it  from 


THE  TROUBLE  23 

galling,  why  put  additions  on  the  private 
mint  when  the  minting  of  money  is  a  Gov- 
ernment function?  Why  not  have  a  finan- 
cial system  that  is  right  both  in  theory  and 
in  practice,  and  fair  to  all? 

A  Monetary  Despotism.  —  We  have  seen 
that  the  common  belief  that  our  Govern- 
ment issues  and  controls  our  money,  or  the 
medium  of  exchange,  is  not  true  in  practice. 
Our  citizens  believe  that  this  great  country 
of  ours  is  a  Republic,  and  to  be  sure  we  do 
enjoy  a  republican  form  of  government; 
but  in  practice  we  have  a  monetary  des- 
potism, ruled  by  a  financial  oligarchy. 

A  presentation  such  as  this  will  not  per- 
mit of  detail,  so  all  that  will  be  attempted 
here,  before  suggesting  the  remedy,  will  be 
to  mention  some  of  the  defects  which  will 
be  readily  recognized  and  admitted  by 
every  one. 

Obvious  Defects  of  Our  Present  Sys- 
tem.—  Our  present  system  is  a  menace  to 
the  people,  as  represented  by  the  State,  be- 


24  FINANCIAL  INDEPENDENCE 

cause  it  allows  a  small  group  of  men  to 
control  such  vast  sums  of  money  that  even 
high  Government  officials  are  intimidated 
or  bought  outright.  Money  stringencies 
and  panics  can  be  and  have  been  brought 
about  for  political  purposes  by  the  con- 
certed action  of  a  few  banking  groups. 
Many  a  time  a  loan  refused,  or  a  loan 
called,  or  the  threats  of  such  action,  have 
caused  public  officials  to  prostitute  their 
office  in  order  to  save  themselves  financiaUy. 

The  present  system  gives  to  a  few  men 
the  right  to  decide  in  what  direction  the 
money  shall  flow,  thereby  causing  strin- 
gency in  some  lines  and  affluence  in  others, 
so  it  is  a  menace  to  stable  business  and  to 
legitimate  commercial  enterprise. 

What  Property  shall  Enjoy  Coinage.  — 
It  is  unjust  because  it  gives  to  a  small 
group  of  men  the  right  to  decide  who  among 
the  people  shall  borrow  the  money  belong- 
ing to  the  people;  in  other  words,  what 
property    shall    enjoy    coinage   into   bank 


THE  TROUBLE  25 

credit,  and  what  shall  not.  This  means 
the  fixing  of  arbitrary  and  discriminating 
valuations,  and  gives  to  a  favored  few 
distinct  and  unfair  advantages  over  other 
men  less  favored. 

Aristocrats  and  Courtiers.  —  It  builds  up 
a  moneyed  aristocracy  which  is  more  auto- 
cratic and  unsympathetic  than  the  heredi- 
tary aristocracy  of  Europe.  Few  business 
men  can  be  independent;  the  vast  major- 
ity must  bow  to  the  whim  of  the  banker. 
The  business  man  should  be  an  indepen- 
dent thinker,  a  fearless  doer;  not  a  cour- 
tier. His  ability  and  integrity  as  a  business 
man,  and  the  value  and  stability  of  his 
enterprise,  should  determine  his  right  to 
the  use  of  credit;  but  at  present  these 
factors  are  not  nearly  so  potent  as  a  pull 
with  the  banker. 

The  Trusts  a  Symptom,  not  the  Cause. — 
Various  writers  have  pointed  out  many,  if 
not  all,  of  the  foregoing  defects  of  which 
our  financial  system  stands  convicted,  but 


26  FINANCIAL  INDEPENDENCE 

they  have  apparently  failed  to  discover  the 
real  underlying  cause  of  all  these  troubles. 
With  other  boog-a-boos  the  '* Trusts"  have 
been  made  the  scapegoat,  but  the  '*  Trusts" 
are  only  a  symptom  and  not  the  cause  of 
the  trouble.  Naturally  lacking  correct  di- 
agnosis of  the  disease,  a  proper  remedy  has 
not  been  suggested. 

Briefly  stated,  the  cause  of  our  trouble  is 
this: 

THE    BANKS   HAVE   DISPLACED   BY    **BANK 

credit"    government-issued    money   AS 

THE  MEDIUM  OF  EXCHANGE,  SO  THAT  THE 
BANKS,  INSTEAD  OF  THE  GOVERNMENT, 
CONTROL  THE  COINAGE  OR  ISSUANCE  OF 
OUR  PRESENT-DAY  MONEY. 


Chapter  II 
THE  REMEDY 

We  have  no  desire  to  do  away  with 
bank  credit  as  the  medium  of  exchange,  as 
we  have  found  by  experience  that  it  is  the 
best  medium  yet  devised;  so  there  is  but 
one  remedy: 

PUT  BANK  CREDIT  UNDER  GOVERNMENT 
CONTROL,  so  THAT  IT  MAY  BE  ISSUED  OR 
COINED  IMPARTIALLY  FOR  THE  BENEFIT  OF 
ALL. 

Neither  Revolutionary  nor  Socialistic.  — 
The  method  of  accomplishing  this  is  not 
revolutionary,  but  is  directly  in  line  with 
the  history  of  bank  development  and  with 
present  tendencies  toward  Government 
control  of  public  utilities,  as  exemplified  by 
our  Interstate  Commerce  Commission,  our 
Public  Service  Commissions,  and  our  Fed- 
eral Reserve  Board. 


28  FINANCIAL  INDEPENDENCE 

Confirmatory  Opinions.  —  Men  in  ex- 
alted positions,  while  they  have  not  sug- 
gested the  same  reasons,  have  grasped  the 
idea  that  banks  should  be  controlled  by 
the  Government,  —  as  witness  the  word 
of  Senator  Owen,  Chairman  of  the  Senate 
Committee  on  Banking  and  Currency: 

"My  own  judgment  is  that  a  bank  is  a  public- 
utility  institution,  and  cannot  be  treated  as  a  pri- 
vate affair  for  the  simple  reason  that  the  public  is 
invited,  under  the  safeguards  of  the  Government,  to 
deposit  its  money  with  the  bank,  and  the  public 
has  a  right  to  have  its  interests  safeguarded  through 
organized  authorities. 

"The  logic  of  this  is  beyond  escape.  All  banks 
in  the  United  States,  pubUc  and  private,  should  be 
treated  as  pubhc-utihty  institutions,  where  they 
receive  public  deposits." 

Also  the  statement  of  Mr.  Justice  Holmes 
of  the  Supreme  Court  of  the  United  States, 
in  the  Oklahoma  Bank  case: 

"We  cannot  say  that  the  public  interests  to 
which  we  have  adverted,  and  others,  are  not  suffi- 
cient to  warrant  the  State  in  taking  the  whole  busi- 
ness of  banking  under  its  control.     On  the  contrary, 


THE  REMEDY  29 

we  are  of  opinion  that  it  may  go  on  from  regulation 
to  prohibition  except  upon  such  conditions  as  it  may 
prescribe." 

The  system,  here  suggested,  gives  a  prac- 
tical and  safe  plan  of  carrying  out  the  idea. 

The  extent  of  the  benefits  of  the  new 
system  will  not  be  apparent  at  first  glance, 
even  to  the  careful  student.  The  vision 
of  the  magnitude  of  the  benefit  to  be  de- 
rived will  come  slowly,  but  none  the  less 
surely,  to  every  intelligent  thinker. 

For  purposes  of  presentation  it  will  be 
best  to  consider  this  remedy  as  a  National 
one,  and  as  applied  to  the  National  bank- 
ing system.  With  a  few  changes  it  can  be 
appUed  to  State  banks.  Details  cannot  be 
covered  in  a  short  treatise,  and  many  will 
have  to  be  worked  out  by  experience.  The 
idea  is  to  present  a  workable  general  plan. 

The  New  System.  —  It  is  suggested  by 
way  of  remedy  to  control  the  issuance  of 
bank  credit  through  two  Government  com- 
missions  to  be    known   as   the  SECumxY 


30  FINANCIAL  INDEPENDENCE 

COMMISSION  and  the  loan  commission,  a 

detailed  plan  for  both  of  which  is  given 

herewith: 

Security  Commission 

Commissions  for  each  District,  one. 
Number  of  members,  nine. 
Term  of  office,  nine  years. 
Removal,  for  cause. 

Duties,  appraisal  of  all  property,  custody  of  business 
records. 

Loan  Commission 

Commissions  for  each  District,  one. 

Number  of  members,  nine. 

Term  of  office,  nine  years. 

Removal,  for  cause. 

Duties,  to  control  loaning  and  investment  of  money 
deposited  in  beuiks,  trust  companies,  building  and 
loEui  associations,  and  insurance  companies;  to 
control  all  clearing  house  operations,  rediscounting 
of  securities,  issuance  of  Federal  Reserve  Notes; 
to  perform  the  present  functions  of  the  Directors 
of  Federal  Reserve  Banks. 

Security  Commission  PersonneL  —  The 
country  being  divided  into  Districts  identi- 
cal with  the  Federal  Reserve  Districts, 
there  would  be  for  each  District  a  Security 


THE  REMEDY  31 

Commission  of  nine  members,  serving  nine- 
year  terms, — one  term  expiring  each  year 
or  three  terms  expiring  each  three  years. 
To  minimize  effectively  the  possibihty  of 
poUtical  preference  or  subservience  to  pri- 
vate interests,  these  nine  members  would 
be  appointed  as  follows:  three  appointed 
by  the  President  of  the  United  States; 
three  elected  by  the  County  Boards  of  Su- 
pervisors of  the  District,  each  board  hav- 
ing as  many  votes  as  the  County  or 
District  represented  has  millions  of  assess- 
able property;  and  three  appointed  by 
the  Governor  or  Governors  of  the  State  or 
States  composing  the  Districts,  each  Gov- 
ernor casting  one  vote.  Of  the  three 
members  to  be  appointed  by  the  President, 
at  least  two  should  be  non-residents  of  the 
District  in  which  they  are  to  act.  This 
would  tend  to  break  down  the  lines  of 
sectionalism  by  bringing  into  each  District 
the  best  thought  and  ideas  of  some  other 
District,  and  would  prevent  the  localiza- 


32  FINANCIAL  INDEPENDENCE 

tion  of  interest.  All  parts  of  the  country 
would  be  brought  into  more  intimate  con- 
tact. The  failure  of  any  of  the  nine  mem- 
bers of  a  Commission  to  perform  his  duties 
would  of  course  necessitate  his  removal, 
which  could  be  accomplished  by  the  ap- 
pointive power.  The  suggestion  that  the 
membership  be  nine  in  number  is  made 
because  the  business  would  probably  be 
divided  into  departments  somewhat  as 
follows: 

1.  City  Real  Estate 

2.  Country  Lands 

3.  Transportation 

4.  Public  Utilities 

5.  Manufacturing 

6.  Mercantile 

7.  Personal 

and  each  of  these  departments  would  have 
at  its  head  one  member  of  the  Commission, 
the  idea  being  that  the  head  of  each  depart- 
ment should  be  or  should  become  an  expert 
in  that  particular  hue  of  work.  This  still 
leaves  two  members,  not  attached  definitely 


THE  REMEDY  33 

to  any  one  department,  who  would  act  in  a 
general  advisory  capacity,  or  who  might 
become  heads  of  departments  to  be  added 
in  the  future.  All  questions  should  be 
decided  by  a  majority  of  the  Commission. 

Duties  of  Security  Commission.  —  For 
the  purpose  of  facilitating  business  and 
regulating  and  standardizing  its  work,  the 
Commission  would  adopt  and  promulgate 
rules  and  regulations  which,  after  approval 
by  the  Federal  Reserve  Board,  should  be 
printed  and  sold  at  a  price  sufficient  to 
cover  their  cost. 

For  the  purpose  of  accommodating  with- 
out undue  hardship  all  the  people  in  the 
District,  the  Commission  would  establish 
branch  offices  wherever  necessary  in  the 
District,  appointing  deputies  in  charge  of 
such  branch  offices;  but  the  business  done 
must  be  at  least  sufficient  to  support  each 
office. 

The  foremost  duty  of  the  Security  Com- 
mission, as  its  name  signifies,  would  be  to 


34  FINANCIAL  INDEPENDENCE 

fix  scientifically  the  valuation  on  all  prop- 
erty within  the  District  which  is  presented 
for  security,  and  finally  on  all  property  on 
which  taxes  are  collected,  and  to  keep  care- 
ful and  accurate  statistics  of  the  business 
record  of  every  individual,  partnership, 
corporation,  or  firm  doing  business  within 
the  District. 

In  doing  this,  the  Commission  would 
finally  procure  and  keep  a  complete  record 
of  all  property  both  real  and  personal  on 
which  taxes  are  collected,  and  which  could 
be  used  as  security.  In  the  case  of  real 
estate,  both  city  and  country,  it  should 
consist  of  a  plat  showing  ownership  (noting 
all  defects  of  title  as  far  as  known),  loca- 
tion, area,  improvements,  use,  and  value.^ 

Honesty  in  Business  Compulsory.  —  The 
Security  Commission  would  do  well  to 
take  over  the  mercantile  agencies,  such  as 
Dun  and  Bradstreet,  and  extend  and  im- 

1  These  records  already  exist  in  the  offices  of  recorders  and 
assessors,  but  they  would  have  to  be  verified  and  improved. 


THE  REMEDY  35 

prove  their  records  until  they  contain  an 
up-to-date  business  record  of  every  man  or 
firm  who  enters  the  business  field.  This  one 
thing  alone  would  be  a  great  spur  to  busi- 
ness success  and  fidelity,  and  a  wonderful 
brake  on  dishonesty  and  chicanery.  It 
would  protect  the  people  from  all  kinds  of 
crooks  and  confidence  men,  who  now  oper- 
ate freely  and  without  restraint.  This  sys- 
tem would  give  every  man  a  business  record 
so  complete  that  a  deliberately  crooked  act 
would  practically  be  business  suicide,  while 
a  good  record  would  be  a  real  asset. 

Insurance  records  would  also  have  to 
be  kept,  reports  being  made  by  the  insur- 
ance companies  of  all  policies  issued  or 
cancelled  which  were  effective  within  the 
District. 

Operation  of  the  Security  Commission. — 
The  Commission  should  devise  and  furnish 
proper  forms,  known  as  Security  Certifi- 
cates, on  which  security  valuations  would 
be   made   on    demand   by   the    owner    of 


36  FINANCIAL  INDEPENDENCE 

property  and  the  payment  of  the  re- 
quired  fee. 

It  should  be  a  crime,  punishable  by  fine 
and  imprisonment,  for  any  member,  deputy, 
or  clerk  of  the  Commission  to  divulge  a 
business  secret  of  any  person,  firm,  or 
corporation  applying  to  the  Conamission, 
or  making  to  them  a  statement  for  business 
purposes. 

Any  person  or  property  owner  being 
dissatisfied  with  his  record  or  the  valu- 
ation given  him  on  his  property  might 
have  his  grievance  settled  in  the  follow- 
ing manner: 

No  Chance  for  Graft  or  Personal  Inter- 
est. —  On  a  blank  form  provided  for  that 
purpose  the  dissatisfied  person  may  state 
in  writing  his  reasons  for  objecting  to  the 
record  as  given,  or  to  the  appraisement  as 
made,  and  he  should  file  this  complaint  with 
the  head  of  the  proper  department.  The 
complaint  would  then  be  answered  in  writ- 
ing in  its  regular  order  and  without  delay 


THE  REMEDY  37 

by  the  head  of  that  department.  If  the 
complainant  is  still  dissatisfied,  he  may  ap- 
peal to  the  whole  Commission.  When  such 
appeal  is  made  it  should  be  heard  without 
delay  by  not  less  than  a  majority  of  the 
Commission  sitting  as  a  court.  Evidence 
may  be  presented,  and  for  that  purpose 
witnesses  may  be  summonsed.  Should  the 
verdict  still  be  unsatisfactory  to  the  com- 
plainant he  may  appeal  still  further.  The 
head  of  the  department  first  hearing  the 
complaint,  or  a  member  designated  by  the 
Commission,  acting  as  judge,  would  sum- 
mons a  jury  of  twelve  men  or  less  as  agreed 
upon.  The  jurymen  should  be  summonsed 
and  selected  under  the  same  rules  as  for  a 
court  jury,  except  that  they  should  be 
summonsed  with  reference  particularly  to 
their  special  knowledge  of  the  kind  of 
property  or  security  in  question,  if  that  is 
the  question.  The  decision  of  this  jury 
would  be  final,  but  the  whole  record  would 
go  to  the  Loan  Commission  if  the  party 


38  FINANCIAL  INDEPENDENCE 

applies  for  a  loan.     All  expenses  of  the 
appeal  would  be  borne  by  the  plaintiff. 

Loan  Commission  PersonneL  — The  di- 
rectors of  the  Federal  Reserve  Bank  would 
become  the  Loan  Commission,  and  their 
appointment  would  be  similar  to  the  pres- 
ent method.  Three  members  would  be 
chosen  by  the  stockholding  banks,  as  at 
present  provided;  three  members,  who  at 
the  time  of  their  appointment  should  be 
actively  engaged  in  their  District  in  com- 
merce, agriculture,  or  some  industrial  pur- 
suit other  than  banking,  would  be  chosen 
by  the  Governor  or  Governors  of  the  State 
or  States  comprising  the  District  (each 
Governor  to  cast  one  vote),  instead  of 
being  chosen  by  the  banks  as  at  present 
provided;  and  three  members  would  be 
appointed  by  the  Federal  Reserve  Board 
as  at  present.  One  of  these  latter  should 
at  the  time  of  appointment  be  a  non- 
resident of  the  District  in  which  he  is  to 
act,  and  he  should   be   the  Chairman  of 


THE  REMEDY  39 

the  Loan  Conimission,  and  the  Federal 
Reserve  Agent.  He  would  have  the  powers 
and  would  perform  the  duties  of  this  oQice 
as  now  set  forth  in  the  Federal  Reserve 
Act. 

Any  director  failing  to  perform  the  duties 
of  his  office  in  a  satisfactory  manner  would 
be  subject  to  removal  by  the  appointive 
power. 

Duties  of  the  Loan  Commission.  —  The 
duties  of  the  Loan  Commission  would  be 
to  perform  the  present  functions  of  the 
directors  of  the  Federal  Reserve  Bank  as 
set  forth  in  the  Federal  Reserve  Act, 
which  act  can  be  adapted  to  the  new  finan- 
cial system  with  but  few  changes  which 
need  not  be  enumerated  here;  to  have  full 
charge  of  and  control  over  all  clearing  house 
operations  within  the  District;  to  keep  a 
record  of  all  funds  within  the  District  which 
are  available  for  loans  or  investment;  to 
receive  and  pass  upon  all  applications  for 
loans;   to  examine  and  approve  securities 


40  FINANCIAL  INDEPENDENCE 

offered  for  loans;  to  record  and  send  noti- 
fication daily  to  all  banks  within  the  Dis- 
trict of  all  approved  applications  for  loans; 
to  receive  and  settle  all  complaints  re- 
garding loans;  to"  approve  before  consum- 
mation all  purchases  of  stock,  bonds,  and 
other  securities  by  banks,  trust  companies, 
and  insurance  companies;  to  promulgate 
and  publish,  with  the  consent  and  approval 
of  the  Federal  Reserve  Board,  rules  and 
regulations,  not  inconsistent  with  law,  for 
the  uniform  operation  of  the  Commission. 
All  such  regulations  would  have  to  be 
general. 

Operation  of  the  Loan  Commission.  — 
Generally  all  apphcations  for  loans  would 
have  to  be  accompanied  by  a  certificate  of 
security  and  a  certificate  of  character  from 
the  Security  Commission,  and  would  be 
passed  upon  by  the  Loan  Commission  be- 
fore being  considered  by  the  banks.  Small 
loans  could  be  made  on  character  certifi- 
cates   without    security,    and    where    the 


THE  REMEDY  41 

credit  of  the  borrower  is  well  established 
unsecured  paper  could  be  accepted  by  the 
banks  under  certain  rules  without  the  for- 
mal application  to  the  Commission.  Notice 
of  this  would  be  given  to  both  Commis- 
sions, so  that  no  concern  would  be  per- 
mitted to  go  beyond  a  safe  limit  of  credit. 
Appeals. —  Any  applicant  for  a  loan  be- 
ing dissatisfied  with  the  action  of  the  Loan 
Conunission  would  first,  on  a  blank  form 
provided  for  that  purpose,  submit  a  written 
statement  of  his  grievance  to  the  Commis- 
sioner immediately  in  charge.  After  the 
Commissioner's  reply,  if  the  applicant  is 
still  dissatisfied,  he  might  appeal  to  the 
whole  Commission,  five  members  of  which 
would  constitute  a  quorum,  and  the  matter 
should  be  decided  without  delay.  Should 
the  applicant  still  be  dissatisfied,  he  may 
appeal  from  this  decision,  and  one  of  the 
Commissioners,  acting  as  judge,  would 
summons  a  jury  of  twelve  or  less,  as  might 
be  agreed  upon,  one-half  of  the  number 


42  FINANCIAL  INDEPENDENCE 

being  representatives  of  banks,  and  one- 
half  other  citizens.  Any  bank  called  upon 
for  a  juryman  would  have  to  furnish 
one,  other  jurymen  to  be  summonsed  and 
selected  as  in  the  Security  Conamission  ap- 
peals. The  decision  of  this  jury  would  be 
final,  and  the  cost  of  the  appeal  would  be 
borne  by  the  plaintiff. 

The  explanation  in  later  pages  shows 
how  the  Security  Commission  performs 
scientifically  the  work  now  guessed  at  by 
bank  appraisers,  and  how  the  impartial 
Loan  Commission  displaces  the  favoritism 
of  the  banks'  loan  committees. 

Laws  to  Govern  Banks.  —  A  few  laws 
governing  the  banks  would  be  necessary. 
No  bank  could  loan  money  except  on  ap- 
proval of  the  Loan  Conmiission  governing 
the  District  in  which  the  bank  is  located. 
No  bank  could  invest  any  of  its  funds 
other  than  ninety-four  per  cent  of  its 
capital  and  surplus,  and  its  undivided 
profits,  in  any  property  or  securities  until 


THE  REMEDY  43 

such  investment  had  been  approved  by  the 
Loan  Commission. 

The  capital,  surplus,  and  undivided  profits  be- 
long to  the  stockholders  of  the  bank,  and  are  not 
bank  deposits  belonging  to  the  people.  Six  per 
cent  of  the  capital  and  surplus  of  National  banks 
is  required  by  the  Federal  Reserve  Act  to  be  in- 
vested in  the  stock  of  the  Federal  Reserve  Bank, 
so  this  would  come  under  the  control  of  the  Loan 
Commission,  but  the  control  of  private  property 
by  public  commissions  is  not  approved  by  the 
author. 

Runs  on  Banks  Prevented.  —  Under  the 
new  system,  a  run  on  any  bank  can  hardly 
be  imagined,  as  the  cause  of  runs,  —  lack 
of  confidence  —  has  been  removed.  The 
people,  knowing  through  their  public  offi- 
cials that  every  asset  of  the  bank  is  worth 
one  hundred  cents  on  the  dollar,  have  the 
further  guarantee  that  every  asset  of  the 
bank  can  be  made  liquid  by  the  following 
provision:  Any  bank  lacking  funds  to  pay 
any  deposit  or  other  obligation  on  demand 
might  borrow  from  any  other  bank  through 


44  FINANCIAL  INDEPENDENCE 

the  Loan  Commission,  or  might  rediscount 
its  paper  to  any  other  bank,  or  the  Federal 
Reserve  Bank  could  rediscount  all  paper 
offered  which  had  been  approved  by  the 
Loan  Commission. 

Bank  Failure  Impossible.  —  Should  such 
bank  still  be  unable  to  meet  the  demands 
made  by  its  creditors,  all  its  assets  would 
be  surrendered  to  the  Loan  Commission, 
and  the  Federal  Reserve  Bank  would  sat- 
isfy all  just  demands  against  such  bank, 
returning  to  the  stockholders  any  residue 
after  liquidation.  For  the  purpose  of  re- 
discounting  the  paper  of  a  bank,  and 
absorbing  its  assets,  the  Federal  Reserve 
Board  would  have  the  power  to  issue  Fed- 
eral Reserve  Notes,  redeemable  by  the 
Government  as  at  present  provided. 

Any  application  for  a  loan  which  does 
not  find  acceptance  by  any  of  the  banks 
of  the  District  in  which  the  security  is 
located,  may  be  submitted  to  the  banks  of 
any    other    Districts    through    the    Loan 


THE  REMEDY  45 

Commission  of  that  District,  or  may  be 
taken  up  by  the  Federal  Reserve  Bank; 
but  no  loan  may  be  made  by  the  Federal 
Reserve  Bank  until  it  has  first  been  sub- 
mitted to  the  banks  of  the  District  in  which 
the  security  is  located. 


Chapter  III 
THE  RESULT 

It  has  been  shown  that  under  our  present 
system  commercial  banks  cannot  extend 
credit  safely  for  more  than  ninety  days. 
This  makes  real  estate  loans  by  commer- 
cial banks  practically  impossible,  and,  in 
fact.  National  banks  are  prohibited  by 
law  from  making  such  loans.  The  new 
system  cures  the  defect  which  causes  this 
limitation  of  credit  to  ninety  days,  and 
removes  the  necessity  for  the  restriction. 
We  can  extend  the  time  of  the  bank  credit 
in  the  same  proportion  that  we  have  en- 
larged the  confidence  of  the  people  in  the 
banks. 

Under  the  new  system,  the  Government 
would  control  and  stand  back  of  the  bank 
credit.  It  would  enjoy  the  same  confi- 
dence that  other  Government-issued  money 
holds,  so  that,  within  reason,  time  would 


THE  RESULT  47 

be  of  no  consequence.  All  loans  would 
stand  on  an  equal  footing, — all  would  be 
equally  liquid. 

The  Two  Systems  Compared.  —  To  com- 
pare practically  the  operation  of  the  two 
systems,  let  us  follow  through  the  details  of 
a  series  of  business  loans.  As  an  example, 
which  answers  equally  well  for  all  kinds  of 
business,  let  us  take  a  block  of  buildings  in 
any  city.  Suppose  there  are  twenty  build- 
ings of  different  ownership  in  that  block, 
and  each  owner  is  desirous  of  securing  a 
loan  on  his  property.  Under  the  present 
system,  owner  number  one  goes  to  bank 
number  one  to  secure  a  loan  on  building 
number  one.  Owner  number  two  goes  to 
bank  number  two  for  a  loan  on  building 
number  two.  The  twenty  different  own- 
ers go,  perhaps,  to  twenty  different  banks, 
for  twenty  different  loans. 

No  Real  Experts  now.  —  Bankers  have 
little  judgment  as  to  the  value  of  securities. 
If  a  loan  is  to  be  made  on  real  estate,  under 


48  FINANCIAL  INDEPENDENCE 

our  present  system,  an  expert  in  real  estate 
values  is  called  into  service.  If  the  loan 
is  to  a  factory,  an  expert  in  that  line  of 
business  is  called  upon  to  go  over  the  state- 
ment of  the  business,  and  to  pass  judgment 
on  its  value.  The  men  who  are  selected  as 
experts  are  not  experts,  and,  besides,  their 
judgment  may  be  warped  or  influenced  by 
self-interest.  Under  the  present  method, 
each  bank  selects  its  own  so-called  expert 
or  appraiser,  and  in  most  cases  haphazard, 
without  knowing  what  real  qualification 
he  has  to  be  called  an  expert. 

Because  of  this  haphazard  selection,  and 
because  the  remuneration  of  the  so-called 
expert  is  small  and  uncertain,  it  is  no  ones 
business  or  duty  to  make  a  real  study  of 
values  in  a  scientific  and  disinterested  way, 
so  no  one  does  it.  Consequently  there  are 
no  real  experts.  Most  appraisement  is  guess 
work,  influenced  by  self-interest. 

The  Bank's  Loan  Committee.  —  Before  a 
loan  is  made  by  a  bank,  the  application 


THE  RESULT  49 

generally  must  pass  the  loan  committee  of 
the  bank  management.  This  committee 
may  have  one  or  more  members  who  are 
competitors  in  business  with  the  applicant 
for  the  loan,  so  the  different  personal 
interests  of  the  twenty  different  loan 
committees  of  the  banks  will  finally 
have  to  be  considered  in  fixing  the  se- 
curity value,  and  giving  consent  to  the 
loans. 

Conflict  of  Interests.  —  All  this  inefS- 
ciency  and  the  conflict  of  interests  not  only 
tend  to  a  very  unjust  decision,  but  require 
a  needless  amount  of  time,  and  place  a 
heavy  tax  upon  the  borrower,  in  both 
legitimate  and  unnecessary  expenses.  Fur- 
thermore, it  is  more  than  likely  that  the 
banks  will  know  little  if  anything  as  to  the 
business  record  of  the  borrower,  his  actual 
honesty,  business  ability,  or  personal  char- 
acter. Haphazard  guess  work,  influenced 
by  personal,  interest,  finally  determines  the 
matter. 


50  FINANCIAL  INDEPENDENCE 

Operation  of  New  System.  —  Under  the 
new  system  there  are,  as  before,  twenty 
different  owners,  each  seeking  a  loan  on 
his  property;  but,  instead  of  going  to  the 
banks  and  begging  for  the  privilege  of  bor- 
rowing the  people's  money  (or,  what  is 
really  the  fact,  having  his  own  property 
coined  into  the  circulating  medium  by  the 
private  mint),  each  owner  applies  at  the 
ojBice  of  the  Security  Commission  for  an 
appraisement  of  his  property. 

There  is  on  file  in  that  office  a  record 
of  all  real  estate  within  the  District,  ap- 
praisement of  which  has  been  made  by 
disinterested  experts,  and  accepted  by  all 
the  people  as  correct. 

Security  Certificate.  —  This  record  is 
kept  aUve  and  up  to  date,  like  a  fire  in- 
surance company's  block  book.  From 
this  record,  in  five  minutes,  a  clerk 
can  make  out  a  certificate  of  security 
which  will  be  given  to  the  property 
owner.     This    certificate,   if    to    do    with 


THE  RESULT  51 

real  estate,  will  show  particularly  the  fol- 
lowing things: 

1.  The  location  of  the  property. 

2.  The  legal  description  of  the  property. 

3.  The  title  (flaws  of  course  will  have  to  be  remedied 

or  considered). 

4.  The  buildings:   when  built,  when  increased  and 

improved,    and    the    cost    of   buildings    and 
improvements. 

5.  Occupancy. 

6.  Insurance  carried  and  its  expirations. 

7.  Business  record  of  owner. 

Security  certificates  on  property  other  than 
real  estate  would  show  the  necessary  fac- 
tors of  each  security. 

Accuracy  vs.  Guess  Work.  —  Under  the 
new  system,  statistics  would  be  gathered 
by  disinterested  employees  of  the  people. 
These  would  be  tabulated  by  scientific 
experts,  and  the  deductions  made  would 
be  of  real  value,  and  could  be  relied  upon 
with  certainty.  The  business  record  of  the 
borrower  would  be  correct,  for  he  could 
see  to  it  that  it  was  correct.     Certainly 


52  FINANCIAL  INDEPENDENCE 

there  would  be  a  uniformity  of  appraisal 
on  these  twenty  properties  that  could  not 
be  secured  by  the  twenty  owners  from 
twenty  different  appraisers  and  bank  loan 
committees. 

How  a  Loan  is  Made. —Now  let  us  go 
further:  each  of  the  twenty  owners,  having 
secured  his  certificate  from  the  Security 
Commission,  showing  in  detail  the  value  of 
his  property,  fills  out  on  a  blank  form 
furnished  by  the  Loan  Commission  his 
request  for  a  loan,  stating  the  amount 
desired,  the  time  for  which  it  is  desired,  the 
interest  he  will  pay,  or  asking  the  bank  to 
name  the  interest,  and  attaches  to  this 
apphcation  his  certificate  of  security.  The 
Loan  Commission  makes  a  record  of  the 
different  papers,  and  then  passes  on  the 
advisabihty  of  making  the  loan  as  re- 
quested. If  approved,  a  notice  of  the  ap- 
plication would  be  sent  to  all  the  banks 
within  the  District  which  have  funds  avail- 
able for  loans.     If  funds   are  not  avail- 


THE  RESULT  53 

able  in  the  banks  of  that  District,  copies  of 
the  appKcation  may  be  forwarded  to  the 
Loan  Commissions  of  other  Districts,  to 
be  taken  up  with  their  banks;  or,  if  the 
Loan  Commissioners  so  decide,  they,  being 
Directors  of  the  Federal  Reserve  Bank  of 
the  District,  may  make  the  loan  them- 
selves from  the  Federal  Reserve  Bank.  In 
any  case,  all  bids  for  the  loan  received  by 
the  Loan  Commission  are  recorded  and 
duly  turned  over  to  the  borrower,  who 
makes  his  choice  within  a  definite  time,  and 
deposits  with  the  Commission  the  neces- 
sary papers  for  the  loan,  the  Commission 
forwarding  these  papers  to  the  bank  or 
banks  chosen  by  the  borrower. 

The  certificate  of  the  Security  Com- 
mission in  one  District  should  be  good 
throughout  the  country,  and  the  conse- 
quent standardization  of  appraisal  and 
property  valuation,  together  with  the 
operation  of  the  rule  allowing  loan  ap- 
phcations  to  go  to  other  Districts,  would 


54  FINANCIAL  INDEPENDENCE 

tend  toward  the  equalization  of  inter- 
est, and  the  making  of  all  the  funds  of 
the  Nation  liquid  and  available  for  the 
transaction  of  business  throughout  the 
country. 

Better  for  Banker  and  Borrower.  —  It 
can  readily  be  seen  what  an  improvement 
this  dignified  and  straightforward  business 
proceeding  is  over  the  present  method.  It 
is  better  not  only  for  the  borrowers  but  for 
the  banks  themselves.  As  it  is  now,  some 
banks  are  loaned  to  their  limit,  even  be- 
yond their  proper  limit;  other  banks  are 
unable  to  get  a  sufficient  demand  for  loans, 
and  either  send  their  funds  out  at  low 
interest  rates  to  other  banks  in  the  big 
cities,  so  as  to  have  their  funds  working,  or 
accept  risks  which  would  not  ordinarily  be 
acceptable.  Under  the  new  system,  the 
law  of  supply  and  demand,  working  on  the 
whole  country  as  a  field,  gives  a  fair  chance 
to  each  borrower  and  to  each  lender. 
There  is  nothing  revolutionary  about  it;  it 


THE  RESULT  55 

is  merely  applying  the  methods  of  efficiency 
and  sound  conamon  sense  to  the  operation 
of  loaning  and  borrowing  money. 

As  before  stated,  the  Security  Conamis- 
sion  would  do  the  valuing  of  property  now 
done  by  various  bank  appraisers;  the  Loan 
Commission  would  do  the  work  now  done 
by  the  loan  conunittees  of  the  banks;  but 
these  two  Conamissions,  working  in  the 
open  on  scientific  principles,  with  stand- 
ardized records  before  them,  would  do  the 
work  with  more  safety,  more  speed,  and 
with  less  cost.  Personal  interest  and  the 
selfish  exercise  of  power  on  the  part  of  the 
bank  would  be  eliminated. 

Borrowing  Money  a  Right,  not  a  Privilege. 
—  The  borrower,  instead  of  running  from 
bank  to  bank  begging  for  what  is  really  his 
by  right,  and  subjecting  himself  to  rebuffs 
and  humiliation  until  he  feels  like  an 
outcast,  gets  his  appraisement  from  the 
Security  Commission,  and  forwards  the 
certificate    with    his    application    to    the 


56  FINANCIAL  INDEPENDENCE 

Loan  Commission.  He  saves  time,  money, 
self-respect,  and  a  very  considerable  wear 
and  tear  on  his  disposition.  He  no  longer 
has  to  bribe,  wheedle,  or  beg,  he  no  longer 
has  to  have  pull  and  inside  influence;  his 
desire  for  a  loan  is  a  simple  business  prop- 
osition, handled  in  a  clean,  businesslike 
manner.  If  his  business  is  legitimate  and 
his  security  right,  he  will  receive  his  loan;  if 
his  business  is  not  straight,  and  his  secur- 
ity not  of  value,  he  will  not  get  a  chance 
to  swindle  any  one. 

Crooks  and  Grafters  out  of  Business.  — 
The  business  records  kept  by  the  Security 
Commission  would  in  themselves  prove 
powerful  factors  in  making  business  cleaner 
and  better.  The  people  would  be  pro- 
tected from  crooks  and  confidence  men 
who  now  operate  freely.  A  clean  business 
record  would  be  a  letter  of  introduction 
the  country  over,  and  failure  to  present 
one  would  mean  exclusion. 
.  As  the  Security  Commission  must  be  self- 


THE  RESULT  57 

supporting,  a  fee  would  be  necessary  for 
the  rendering  of  the  service  demanded. 
This  fee  would  be  small,  perhaps  a  twen- 
tieth of  the  present  cost  of  securing  a  loan. 
The  certificate  of  the  Security  Commission 
leaves  no  loophole;  it  is  merely  a  scien- 
tific, disinterested  statement  of  the  value 
of  the  property  in  question. 

Standardization  of  Values.  —  Some  may 
question  the  possibility  of  this  standardiz- 
ing of  property  values,  and  for  that  reason 
it  is  worth  taking  a  little  time  to  explain 
the  methods  by  which  property  would  be 
valued.  Under  this  new  system,  the  figures 
of  the  assessor's  ofiice  would  at  all  times 
be  open  to  the  Security  Commission.  In 
fact,  after  the  Security  Conamission  became 
a  smoothly-working,  efiicient  organization, 
the  need  for  assessors  would  be  eliminated. 
The  figures  would  all  be  in  the  hands  of 
the  Security  Commission,  and  the  Com- 
mission's experts  would  keep  them  up  to 
date.     A   scientific   valuation   of  all   real 


58  FINANCIAL  INDEPENDENCE 

estate  with  present  improvements,  and  of 
all  other  property  available  for  taxation, 
would  gradually  be  made.  Appeals  of  the 
owners  would  have  to  be  heard,  and  ad- 
justments made  until  the  standardized 
condition  was  reached.  The  Commission's 
experts  would  follow  closely  all  work  of 
improvement,  and  the  cost  of  such  im- 
provements should  be  reported  to  the 
Commission  for  recording. 

Establishment  of  Values  Automatic.  — 
The  standards  of  value  in  judging  property 
would  be  arrived  at  through  the  operation 
of  the  law  of  averages.  If  a  man  were 
allowed  to  fix  his  own  property  valuation, 
and  that  valuation  had  to  be  accepted  by 
the  Security  Commission  and  the  Tax 
Commission,  it  would  naturally  work  for 
the  benefit  only  of  the  rich  non-borrower, 
and  to  the  detriment  of  the  borrower, 
because  the  assessment  for  taxes  and  the 
value  as  security  would  be  fixed  by  the 
same  valuation.    The  non-borrower  would 


THE  RESULT  59 

not  be  interested  in  the  value  of  his  prop- 
erty as  security,  and  would  put  the  value 
low,  thus  avoiding  taxes;  while  the  bor- 
rower, needing  his  property  as  security, 
would  put  his  valuation  high,  and  would 
pay  increased  taxes  for  the  sake  of  the 
added  borrowing  power  of  his  property. 

This  difference  of  opinion  or  interest 
between  the  two  classes  of  property  holders 
would  be  settled  by  the  Commission  through 
complaints  and  appeals,  the  operation  of 
which  has  already  been  described.  It  is 
this  very  conflict  of  opinion  or  interest 
that  would  be  the  determining  factor  in 
arriving  at  the  true  value  of  property. 

Regulates  Tax  Values.  —  Under  our  pres- 
ent system,  the  assessor,  or  appraiser  of 
our  property  for  taxation,  is  in  the  eyes  of 
the  community  its  bitterest  foe,  because 
every  taxpayer  fights  on  principle  for 
lowered  taxes.  The  proposition  of  un- 
equal and  unjust  assessment  has  given 
rise  to  endless  discussion  and  legislation 


60  FINANCIAL  INDEPENDENCE 

and  experiment,  all  of  which  has  ended 
in  dismal  failure,  because  each  one  in  the 
community  believes  it  to  be  to  his  interest 
to  beat  the  assessor  and  the  tax  collector. 

The  new  system  would  change  this  atti- 
tude. Property  would  he  no  longer  merely 
of  taxable  interest;  it  would  have  a  security 
value.  The  whole  public  would  become 
vitally  interested  in  every  assessment  or 
valuation.  The  borrowers  would  study 
with  care  every  assessment  made,  in  order 
to  show  by  comparison  that  their  property 
was  of  a  certain  high  standard  and  had 
a  certain  high  value;  while  the  non-bor- 
rower, anxious  to  escape  overtaxation, 
would  be  just  as  zealous  to  prove  that  his 
property  had  not  as  high  a  value  as  the 
assessment  showed.  The  average  of  many 
judgments  would  give  a  result  that  all 
would  accept. 

Just  as  the  life  insurance  mortality 
tables  arrive  at  the  expectancy  of  life  by 
the  average  of  many,  so  would  the  prop- 


THE  RESULT  61 

erty  valuation  statistics  of  the  entire 
country  bring  about,  through  the  average 
judgment  of  the  people,  a  just  and  fair 
basis  of  taxation,  and  a  safe  and  sound 
security  valuation,  with  a  smaller  expense 
to  the  community  than  is  now  incurred 
for  the  haphazard  assessment  for  taxation. 
Such  a  close  watch  would  eventually  be 
kept  upon  all  property  that  tax-dodging 
would  be  almost  if  not  quite  impossible, 
and  shortselling  of  grain,  cotton,  etc.,  for 
speculation  would  be  too  dangerous  to  be 
attempted.  The  plundering  of  estates  by 
fake  appraisements  and  phoney  sales  could 
not  occur. 

Neither  Political  nor  Private  Graft.  — 
The  object  to  be  attained  in  having  two 
Commissions  instead  of  one  larger  body 
is  of  course  easily  seen.  The  duty  of  the 
Security  Commission  is  to  value  every 
property  in  relation  to  every  other  prop- 
erty, and  on  that  valuation  will  depend  the 
ability  of  the  owner  to  borrow,  and  his 


62  FINANCIAL  INDEPENDENCE 

duty  to  pay  taxes.  To  a  certain  degree  this 
action  is  automatic,  following  the  law  of 
averages,  the  people  themselves  furnishing 
the  swings  of  the  pendulum,  with  the  Com- 
mission determining  the  middle  of  the 
swing  between  the  two  extremes.  The 
duty  of  the  Loan  Conamission,  on  the  other 
hand,  is  to  determine  the  percentage  of 
value  to  be  loaned,  and  this,  too,  will  be 
semi-automatic.  If  the  percentage  re- 
quested is  too  high,  the  banks  will  refuse 
to  go  that  far;  if  the  banks  insist  on  its 
being  put  too  low,  the  Federal  Reserve 
Bank  may  make  the  loan,  it  can  be  taken 
up  by  banks  in  other  Districts,  or  private 
parties  could  bid  the  business  away  from 
the  banks,  thereby  forcing  the  banks  to  a 
fair  standard. 

Safety,  Honesty,  Prosperity,  Power.  — 
Neither  Commission  exercises  any  arbitrary 
power,  and  there  is  consequently  no  chance 
for  graft  or  corruption.  The  object  of  the 
Commissions  would  be  scientific  and  efS- 


THE  RESULT  63 

cient  service.  Their  actions  would  be 
watched  with  the  keenest  and  most  jealous 
interest.  The  decisions  of  the  Security 
Commission  establish  values  —  the  foun- 
dations of  business  and  fortune.  The  deci- 
sions of  the  Loan  Commission  take  the 
values  established  by  the  Security  Com- 
mission and  add  to  them  power.  Every 
man,  regardless  of  race,  color,  religion,  or 
political  faith,  would  have  an  equal  chance 
to  do  business  on  equal  terms  with  every 
other  man.  The  whole  political  system 
would  be  quickened  and  purified,  because 
every  business  man  would  realize  that  his 
business,  in  fact  his  whole  chance  in  life, 
depended  upon  the  proper  exercise  of  polit- 
ical power,  and  the  proper  exercise  of 
political  duty.  The  greatest  danger  to 
political  liberty  and  to  the  integrity  of  our 
public  officials  would  be  removed. 

The  Money  Power.  —  The  Money  Power, 
now  in  the  hands  of  a  few  men  because  they 
control  the  mint  and  operate  it  for  private 


64  FINANCIAL  INDEPENDENCE 

gain,  would  be  in  the  hands  of  the  people, 
and  would  be  used  for  the  benefit  of  all.  It 
would  no  longer  be  a  menace  and  a  source 
of  political  corruption. 

The  Money  Trust.  —  The  expression, 
*'The  Money  Power,"  is  used  in  the  press 
and  is  thought  of  as  synonymous  with  the 
Money  Trust  The  Money  Trust  is  created 
by  the  money  power  in  this  way:  under 
laws  enacted  by  the  people's  representa- 
tives, banks,  trust  companies,  and  insur- 
ance companies  are  incorporated.  The 
people  put  their  money  into  these  institu- 
tions. By  a  fiction  of  deposit,  that  which 
goes  into  banks  and  trust  companies  be- 
comes the  basis  for  minting  bank  credit,  — 
and  that  is  the  Money  Power.  It  is  created 
by  the  people.  It  belongs  to  the  people. 
Why  do  not  the  people  control  it  and  use 
it,  instead  of  letting  the  Money  Trust 
abuse  it? 

The  People  Should  Control  the  Money 
Power.  —  The  Pujo  Committee  showed  in 


THE  RESULT  65 

1912  that  the  Money  Trust  controlled 
about  twenty-five  billions  of  dollars.  A 
few  laws  were  recommended  by  that  com- 
mittee, and  some  were  passed,  looking 
toward  the  curbing  of  this  monster,  but 
their  effect  in  that  direction  is  not  yet 
apparent. 

Let  the  people  control  the  bank  credit, 
which  is  the  money  power,  and  the  Money 
Trust  passes  into  oblivion,  with  other  fear- 
some things  of  the  Dark  Ages.  Our  dark 
ages  of  finance  will  be  over! 

Our  Laws  Forge  our  Fetters.  —  Mr. 
Brandeis  states  that,  "The  fetters  which 
bind  the  people  are  forged  from  the  people's 
own  gold."^  It  is  not  the  people's  gold, 
but  the  people's  laws  that  forge  our  fetters. 
Gold  is  but  a  commodity  like  wheat  or 
iron.  It  is  not  our  present  medium  of 
exchange. 

The  laws,  which  create  and  govern  banks, 
permitting  them  to  issue  bank  credit,  which 

1  "Other  People's  Money." 


66  FINANCIAL    INDEPENDENCE 

is  our  present-day  money,  are  at  fault. 
Through  these  laws  the  mint  is  turned  over 
to  a  small  group  of  men  variously  known 
as  "Wall  Street,"  the  ''Money  Trust," 
'*The  Money  Power,"  and  in  their  hands  is 
the  fate  of  this  Nation.  They  determine 
who  among  us  shall  ride  in  the  coach  of 
prosperity  and  who  shall  trudge  the  dusty 
road  of  adversity  and  despair. 

This  group,  collectively  or  as  individ- 
uals, are  perhaps  wholly  unconscious  of 
the  fact  that  they  are  exercising  a  power 
which  is  dangerous  to  the  Nation,  and 
oppressive  to  the  people.  The  banking 
customs  and  laws  are  not  of  their  making. 

Usurpation  of  Governmental  Function. — 
Our  financial  and  banking  system  has 
grown  out  of  the  necessities  of  com- 
merce from  the  simplest  beginning,  and 
its  usurpation  of  the  Governmental  func- 
tion of  issuing  and  controlling  the  circulat- 
ing medium  has  been  so  gradual  and  so 
insidious  that  it  has  apparently  escaped  the 


THE  RESULT  67 

notice  of  our  economists  and  our  financial 
writers.  At  all  events,  it  is  accepted  by 
them  as  a  natural  sequence  of  events. 

The  evil  effects  have  been  very  apparent, 
and  have  given  rise  to  quantities  of  litera- 
ture and  cyclones  of  oratory.  It  has  been 
demonstrated  in  money  stringencies,  and 
by  a  disastrous  panic  every  ten  years  for 
the  past  eighty  years.  It  has  produced 
the  trusts;  it  has  produced  political  and 
social  unrest,  but  the  real  underlying  cause 
has  escaped  notice. 

Change  the  Rules  of  the  Game. — To  be- 
rate the  men  who  exercise  this  power  is 
not  justice,  and  will  bring  no  relief;  to 
attempt  to  take  from  them  what  they  have 
won  in  a  game  where  we  ourselves  made 
the  rules  would  be  unfair  and  unsportsman- 
like. There  is  but  one  course  to  pursue: 
with  the  knowledge  that  our  self-created 
rules  of  the  game  work  unfairly  to  the 
players,  change  them  so  that  all  may  have 
an  equal  chance.     Arrange  things  so  that 


68  FINANCIAL  INDEPENDENCE 

by  industry,  skill,  and  intelligent  work  a 
man  can  win  the  comforts  and  luxuries 
of  life  without  courting  the  favor  of  the 
money  barons  who  run  the  private  mint. 

A  New  Declaration  of  Independence.  — 
In  1776  we  declared  our  independence  be- 
cause we  were  through  with  the  fallacy  of 
the  *' Divine  right  of  Kings"  and  the  in- 
justice of  a  hereditary  aristocracy.  Our 
staunch  old  ancestors  had  breathed  the 
air  of  a  new  country,  they  had  tasted 
liberty,  they  wanted  to  be  men,  —  not 
sycophants  or  courtiers,  —  so  the  great 
Declaration  of  Independence  was  written. 

It  is  time  to  write  another,  —  the  Dec- 
laration of  Our  Financial  Independence. 
Its  adoption  will  be  as  strenuously  opposed 
by  our  present  financial  rulers  and  their 
courtiers  as  was  the  great  Declaration  of 
1776  by  the  then  political  rulers  and  the 
Tories.  They  believe  as  firmly  in  their 
Divine  right  as  did  ever  prince  or  potentate. 
They  are  entrenched  in  the  halls  of  Con- 


THE  RESULT  69 

gress.  The  wheels  of  Government  are  in 
their  hands.  Nine-tenths  of  our  circulating 
medium  is  at  their  mercy.  To  create  a 
panic,  they  have  but  to  close  their  hand. 
Industry  stops,  labor  is  out  of  employ- 
ment, business  failures  are  the  order  of  the 
day. 

Heroes,  Martyrs,  and  Slaves.  —  The 
rulers,  their  satellites,  —  the  ultra-conser- 
vatives and  the  timid,  —  will  say,  "You 
are  interfering  with  established  conditions, 
you  are  overturning  business  traditions." 
They  will  blame  the  panic,  the  failures,  the 
bread-line,  and  the  soup  kitchen  on  the 
political  agitation. 

No  reform  was  ever  won  without  a 
struggle,  or  without  privation  and  suffer- 
ing by  the  people.  The  struggle  is  going 
on  now,  but  it  is  at  random  and  in  the 
dark: 

''Here  and  there,"  says  Brandeis,  "you  will  find 
a  hero,  —  redblooded  and  courageous,  —  loving 
manhood  more  than  wealth,  place,  or  security,  — 


70  FINANCIAL  INDEPENDENCE 

who  dared  to  fight  for  independence,  and  won. 
Here  and  there  you  may  find  the  martyr,  who 
resisted  in  silence  and  suffered  with  resignation. 
But  America,  which  seeks  'the  greatest  good  of 
the  greatest  number,'  cannot  be  content  with  con- 
ditions that  fit  only  the  hero,  the  martyr,  or  the 
slave."  1 

Few  of  us  are  ambitious  to  be  heroes,  still 
fewer  desire  to  be  martyrs,  and  we  all  resent 
being  slaves;  so  we  as  a  people  have  a  work 
to  do.  For  this  struggle,  the  only  weapon 
we  need  is  knowledge,  the  only  strategy  we 
need  is  to  elect  men  to  office  who  will  enact 
laws  necessary  to  give  the  Government 
control  of  the  bank  credit  which  is  our 
present-day  money;  and  the  struggle  will 
be  won. 

Financial  Independence.  —  Financial  lib- 
erty will  be  won.  This  great  country  of 
ours  will  be  a  real  Republic,  and  will 
gather  the  power  which  comes  from  giving 
to  each  unit  its  full  efficiency.  We  shall 
enjoy   a  prosperity   limited   only   by  our 

1  "Other  People's  Money." 


THE  RESULT  71 

own  efforts,  and  a  security  measured  by 
our  own  vigilance. 

Knowledge  is  power,  Power  is  wealth. 
Disseminate  knowledge,  take  over  the  money 
power,  and  thus  will  each  individual  secure 
the  share  to  which  his  intelligence,  integ- 
rity, and  industry  entitle  him. 


^B  12623 


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